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Is Hong Kong Ready for Class Actions?

30 May 2012

Mayer Brown Legal Update

On 28 May 2012, the Law Reform Commission of Hong Kong ("LRC") issued a report recommending the introduction of a class action regime in Hong Kong.

At this stage, the class action regime proposed is only for "consumer cases", although there is the possibility of the regime being broadened in the future to include securities misselling cases and shareholders’ claims.

What Are Class Actions?

In a class action, a representative plaintiff brings a single suit on behalf of a large group of people who have a claim in respect of the same or a similar alleged wrong and whose claims raise the same questions of law or fact. Such a mechanism is useful in cases where a large number of persons have been adversely affected by another’s conduct, but each individual’s loss is too small to make individual litigation economically viable. These circumstances typically arise in cases relating to consumer protection, personal injury, and securities and shareholders’ claims.

Current Mechanism in Hong Kong

Currently in Hong Kong, the only mechanism for dealing with multi-party proceedings is a rule on representative proceedings under the Rules of High Court, which concerns litigants who have the "same interest" in any proceedings. In the leading case of Markt & Co. Ltd. v Knight Steamship Co Ltd [1910] 2 KB 1021 (CA), the UK Court has interpreted the phrase "same interest" to mean that all class members have to show identical issues of fact and law. This essentially requires that there be the same contract between all the plaintiff class members and the defendant, the same defence pleaded by the defendant against all the plaintiff class members, and the same relief claimed by the plaintiff class members. Such mechanism has often been criticised as restrictive and inadequate and as a result, few actions have been brought under such rules.

Over the years, the courts have sought ways to relax these requirements in order to bring more cases within the ambit of the rules. However, the lack of a comprehensive regime and the possibility of Markt not being followed an appellate court in Hong Kong means that very view litigants are willing to test judicial attitudes towards representatives actions. Further, few litigants have the resources to do so as they stand at risk of adverse costs orders. It is against this backdrop that the LRC has proposed a class action regime.

Key Recommendations

The class action regime is proposed for "consumer cases" (defined by the LRC as "tortious and contractual claims made by consumers in relation to goods, services and immovable property") only as part of an incremental approach to allow the courts and the community to gain experience with the procedure. Further consideration will be given in due course as to whether the regime should be extended to other types of cases.

To avoid unnecessary law suits and to filter out any vexatious claims, the LRC proposes that a case should only be allowed to proceed as a class action if it has been certified as so suitable by a court.

The new class action regime should adopt an "opt-out" approach as the default position for class members residing in Hong Kong (subject to the Court’s discretion to order otherwise) - that is, those who are defined by the court to be members of the same class would automatically be bound by the class action unless they have opted out within the prescribed time limit. An "opt-out" approach should be the default position for class members generally residing outside of Hong Kong.

To prevent abuse of the court process and to ensure that those put at risk of litigation should not suffer unfairly, it is recommended that a representative plaintiff's ability to satisfy an adverse costs order should be made one of the certification criterion and the court should be empowered to require a representative plaintiff to pay security for costs in appropriate cases.

LRC proposes in the long term, a general class actions fund should be established. In the short term, given it is proposed the regime should initially apply only to consumer cases, it is proposed that the existing Consumer Legal Action Fund be increased to fund such class actions.

What Next?

It has taken over 12 years to reach this point since a working party was first approved to look at this issue, and 6 years since the LRC first started its work. It is likely there will be further delays before class action, even for the limited proposal applicable to consumer cases, become a reality in Hong Kong.

As the proposal is limited to consumer cases, it will take sometime before financial institutions and corporations (and their insurers) face the risk of class action litigation in Hong Kong. For a start, the LRC’s proposals need to be endorsed. The class action regime will need to be broadened and the issue of funding resolved, before Hong Kong is exposed to such class action litigation. Nevertheless, the writing is on the wall and concerned parties need to take heed of this development.

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